Republicans Consider Sharp Cut in 401(k) Contribution Limits
The proposals under discussion would potentially cap the annual amount workers can set aside to as low as $2,400 for 401(k) accounts, several lobbyists and consultants said on Friday. Workers may currently put up to $18,000 a year in 401(k) accounts without paying taxes upfront on that money; that figure rises to $24,000 for workers over 50. When workers retire and begin to draw income from those accounts, they pay taxes on the benefits.
.. Reducing contribution limits would be, in effect, an accounting maneuver that would create space for tax cuts by collecting tax revenue now instead of in the future.
.. Such a move would be likely to push Americans to shift their savings to so-called Roth accounts, where contributions are taxed immediately, and not when they are drawn out as benefits. That would increase federal tax receipts for the short run.
.. Under the rules of budget reconciliation — the method Republicans are employing to avoid a Democratic filibuster of the bill — legislation cannot increase budget deficits after a decade. Shifting revenue by lowering 401(k) limits “raises money early, but loses money late, and that’s exactly the opposite of what you want in a reconciliation bill,”